EBRS – Age Legislation and reward

EBRS just presented an update on the impact that recent age legislation has had on reward.

Forty members of the CIPD’s Bristol branch listened to EBRS explain the changes and heard about recent cases from two employment law and HR experts. EBRS also outlined some of the current trends in reward that we have seen amongst their clients.

The background

In 2006, age discrimination legislation established the principle that service‐related benefits can be discriminatory on the grounds of age. This is because younger workers can have the same skills as older workers, but are less likely to have the service needed to qualify for benefits like long service awards.

There are broad exemptions to this. Benefits are automatically exempt for the first five years of service or in a role.
Beyond this, benefits can be exempt if they have an appropriate, proportionate and legitimate aim – for example, if they can be shown to reward loyalty, encourage motivation or genuinely recognise experience.
Employers must be able to demonstrate that they have considered how they comply with these requirements, so keeping records is important.

Impact on pay and benefits

Service‐related pay:

Organisations using incremental pay progression, where staff advance up a pay scale each year, need to exercise cau􀆟on if increases are linked solely to experience. Whether these systems are appropriate depends on how much experience in the job is needed. In roles where people are continually gaining experience then linking pay to service is likely to be fair, but service progression in a scale should be limited to five years’ worth. Beyond this point, progression needs to be linked to performance.
EBRS have helped clients set up structures where performance needs to be above expectations to warrant further progression.

Group Risk benefits:
Much to the relief of financial services providers, Group Risk schemes (such as Life Assurance, Income Protection, Private Medical Insurance) are exempt from the changes.

This means that cover can be withdrawn when employees reach State Pension Age.
Our providers that we work with have noticed few changes with their clients. Scheme providers have tended to revise their products to reflect the State Pension Age and the market remains competitive, so costs haven’t particularly risen.

As always, it is worth shopping around on renewal

Bonus and share schemes:

Eligibility can be restricted, as long as those with more than 5 years’ service aren’t disadvantaged. Unlike
Group Risk schemes, share schemes are not exempt when employees reach State Pension Age. They remain eligible to receive share options beyond any retirement age.
If you don’t have a fixed retirement age, then logically retirement can’t be used as a reason for leaving, so retirees have to resign & give notice. This means that you need to ensure they aren’t treated as ‘bad leavers’, who lose scheme benefits.Pensions:

With auto‐enrolment on the horizon, organisations will have to opt in employees who are aged between 22 and the State Pension Age, who meet minimum earnings qualifications. They also need to inform other employees of the scheme if they are up to the age of 74 or between 16 and 22.
Larger companies, who have the earliest deadlines to go live with changes, are star􀆟ng to take action. Others are also looking to make pension scheme changes, particularly where they see it as a way of improving
employee engagement.
Many companies don’t use salary sacrifice arrangements for pension contributions, so a new scheme can provide attractive National Insurance savings for employer and employees alike.

So has much changed yet?

To answer this, we need to look at what was behind the legisla􀆟on. Most activity has centred on ensuring compliance with the law, but few organisations have sought to do more.
In March 2012, ACAS reported that there has been “… little evidence that UK employers are taking proactive steps to engage and retain older workers.”
However, the reality is that, in the immediate future, significant numbers of people will still retire at 65 as they planned, even though they aren’t compelled to.
The economic climate has meant that costs have been tightly controlled and our clients have only made age related changes out of organisational necessity.
Examples include where they have identified an urgent need to improve employee engagement, if they are experiencing organisational change such as expansion, harmonisation or if they are undertaking broader terms and conditions reviews.
This pattern will obviously have to change, but only when the business case becomes stronger. Economic improvement will help, but pressure will inevitably come to bear as people who intend working for longer reach their 60s.
A recent CIPD Outlook survey showed that half of all workers plan to retire between 65 and 70, with many wanting to work beyond this age, so it is only a matter of time before organisations need to make responding to age a priority.

Getting employee reward right will help your organisation to recruit and retain the people you need so that you can meet your business objectives.

Organisations spend large amounts on rewarding their employees, but most don’t employ a reward specialist or haven’t got the resource to focus on complex reward issues.

We would welcome the chance to talk about how we can help with your reward strategy, to evaluate and benchmark your roles, or assist with any other reward issues you may be facing.
We will discuss your requirements, explain the options available and recommend the best way forward. Our collaborative approach means that we will deliver a flexible solution that fits your needs.